The CII has compartmentalized insurers into different levels depending on their Solvency Margin Ratios. The solvency of insurance companies - their capability to cover exposed risks – is stated in terms of figures and larger figures indicate weaker solvency.
Insurance companies with solvency level 1 include Asia (SMR 107) , Dana (110) , Alborz (101), Parsian (100), Mellat (SMR 266), Saman (SMR 132) , Novin (SMR 172), Pasragard (SMR 122), Karafrain (SMR 101), Kowsar (SMR 100), Ma (SMR 227), Sarmad (SMR 131), Omid (SMR 120), Iran Moien (SMR 266), Asmary (SMR 113), Hekmat Saba, Tejart Nau, Middle East , Amin Re.
Amin Re witnessed the highest promotion and improved its SMI from 784 in 2017 to 1,592 in 2018 holding the highest SMI on the list, according to Financial Tribune.
Moalem (SMR 77) , Razi (SMR 75), Sina (SMR 86), Ta'von (SMR 83) , Day (SMR 73) , and Arman (SMR 80) retain the solvency level of 2 with Moalem and Sina unchanged for four consecutive years. Also, Hafez and Mihan companies, whose solvency level was 4 last year, promoted themselves to level 2 in 2018.
The CII Office for Financial Supervision requires level 2 firms to develop three-year plans for improving their financial health. The regulator is planning to allow these firms to raise capital.
According to CII data, no insurance company was placed in solvency level 3 in 2018.
State-Owned Co. Has the Weakest Solvency
SMR for Iran Insurance Company rose from 28 in 2017 to 38 in 2018. Despite the improvement, Iran Insurance Company as the only state-run company, which accounts for 30% of the insurance market, was placed in Level 4 for the second year running.
Level 4 for IIC means that its capability to fulfill its commitment is over 10% and below 50%.
Also, as per provisions of the solvency bylaw, the CII’s Office for Financial Supervision imposes immediate punitive measures on level 4 firms, including reducing policy issuance power, cutting bonus to senior managers and suspending investment in less productive sectors.
However, according to IBENA, IIC has the lion's share in the domestic insurance market and forcing it to stop issuing some of its policy categories would be an exercise in futility, especially considering the fact that IIC is the sole insurer that is legally tasked with issuing compulsory third-party motor insurance policies while other firms are not obliged to do so.
Gholam Reza Soleimani, head of CII, proposed that discarding loss-making portfolios and modifying some procedures will help IIC improve its solvency.
According to a report by Capital Intelligence, a global rating agency, the Iranian insurance sector remains highly fragmented, characterized by the dominant market position of Iran Insurance Company, the state-owned insurance company with a market share of 38% in FYE 2017, and the existence of numerous small insurers. The latter are struggling to achieve critical mass to cover costs, resulting in a highly competitive environment.
Most Iranian insurers rely on a motor dominated business mix. The mandatory motor third-party liability especially is a line where by regulatory design the price is politically driven rather than risk-based, often leading to technical underwriting losses, which are partially offset by investment income.